March 14, 2002

The Honorable Patrick J. Leahy
Chairman, Senate Judiciary Committee
433 Russell Senate Office Building
United States Senate
Washington DC 20510

The Honorable Orrin G. Hatch
Ranking Minority Member
Senate Judiciary Committee
433 Russell Senate Office Building
United States Senate
Washington DC 20510

Re: Chief U.S. District Judge D. Brooks Smith

Dear Senators Leahy and Hatch:

I am writing to comment on the nomination of District Judge D. Brooks Smith to the United States Court of Appeals for the Third Circuit.

In brief, Judge Smith's violations of the Federal Judicial Disqualification Statute, 28 U.S.C. §455, in SEC v. Black and in United States v. Black, are among the most serious that I have seen. His disregard of his judicial responsibilities, and his disingenuous attempt to justify his conduct, persuade me that he is not fit to serve as a Federal Circuit Judge.

My qualifications as an expert witness on lawyers' and judges' ethics are set forth in the accompanying statement. Although I am volunteering this opinion regarding Judge Smith, I have been invited to testify before your Committee several times over the past quarter of a century. Also, I have qualified as an expert witness on lawyers' and judges' ethics in federal and state courts throughout the country, and I have received the American Bar Association's highest award for professionalism, in recognition of "outstanding contributions to the field of professional responsibility" and "a lifetime of original and influential scholarship in the field of lawyers' ethics."

I base my opinion regarding Judge Smith on the following documents: Letter, with Attachments, to the Chairman and the Ranking Member from Douglas T. Kendall, February 20, 2002; Letter to the Chairman, the Ranking Member, and Senator Specter from Mark A. Rush, February 22, 2002; Letter to the Chairman and the Ranking Member from Judge Smith, February 25, 2002; and Letter to the Chairman and the Ranking Member from Douglas T. Kendall, March 5, 2002.

Mark A. Rush's letter of February 22, 2002, was written to refute "erroneous and, frankly, fanciful" allegations by Mr. Kendall against Judge Smith and to "clarify the record." Ironically, however, that letter confirms Judge Smith's unethical conduct and his ignorance of his judicial obligations. According to Mr. Rush, on October 27, 1997, "the Trustee [former Attorney General Dick Thornburgh] advised Judge Smith that information, although in its very early developmental phases, was being uncovered which may change Mid-State Bank's involvement in the case from that of merely a depository of funds."

In response, Judge Smith told the Trustee about his wife's position with the Bank, but withheld any mention of his own and his wife's financial interests in the Bank's parent company. Also, demonstrating a fundamental misunderstanding of the Federal Judicial Disqualification Statute and of the nature of conflicts of interest, Judge Smith said that he would consider recusing himself based on "the potential for a future appearance of a conflict." In fact, Judge Smith did not recuse himself until October 31, 1997, by which time he had issued additional orders in the case.

Mid-State Bank's potential liability for Black's frauds required Judge Smith to recuse himself on October 27, 1997, because Judge Smith's wife was an officer of Mid-State Bank, and because the Judge and his wife held between $100,000 and $250,000 in stock in Keystone Financial, Inc., which is Mid-State's parent company. These interests could have been substantially affected by rulings in SEC v. Black.

The two provisions of the Federal Disqualification Statute that Judge Smith violated by not recusing himself from SEC v. Black on October 27, 1997, are §455(a) and §455(b)(4).

The first of those, §455(a) says that a judge "shall" disqualify himself if his impartiality "might reasonably be questioned." (Emphasis added). Judge Smith's impartiality in SEC v. Black might reasonably have been questioned by October 27, when the Trustee informed Judge Smith of the possibility that the Bank was implicated in Black's frauds, and when the Trustee divested the Bank of $86,000,000 of assets and transferred them to another bank for safekeeping.

The most important interpretation of §455 is the Supreme Court's decision in Liljeberg v. Health Services Acquisition Corp., where the Court gave effect to the plain meaning of §455(a). Liljeberg was a declaratory judgment suit that centered on which party owned a certificate from the State of Louisiana to build a new hospital. Loyola University was not a party to the litigation-just as Mid-State Bank was not a party to SEC v. Black. Nevertheless, because of a contract between Loyola and Liljeberg, the University did have a substantial financial interest in Liljeberg's obtaining the certificate-just as Mid-State Bank and its parent company had a substantial financial interest in SEC v. Black.

After a trial, Federal District Judge Robert Collins awarded the certificate to Liljeberg. Ten months later, the losing party, Health Services Acquisition Corp., learned that Judge Collins had been a member of Loyola's board of trustees at the time of the trial. Accordingly, Health Services moved to vacate the judgment and to retry the case before an impartial judge. Significantly, Judge Collins had had no personal financial interest in the outcome of the Liljeberg litigation-unlike Judge Smith, who did have a substantial part of his personal assets invested in Mid-State Bank's parent company.

As a board member, Judge Collins had been present at meetings when Loyola's contract with Liljeberg had been discussed. However, another federal district judge, who conducted a hearing on the motion to vacate the judgment, found as a fact that Judge Collins had forgotten about Loyola's interest in the matter during the trial, and the Supreme Court accepted this finding in its discussion of §455(a). This did not answer the question, however, of whether a reasonable person "might" nevertheless "question" whether Judge Collins had really forgotten what he had known, and therefore question his impartiality. The problem, the Court noted, is that members of the public too often have "suspicions and doubts" about the integrity of judges. Congress enacted §455(a) to eliminate such suspicions and doubts and to avoid the appearance of impropriety "whenever possible."

By October 27, 1997, Judge Smith had actual knowledge of Mid-State Bank's potential liability for Black's frauds. As of that date, therefore, a reasonable person might have had "suspicions and doubts" about his impartiality regarding litigation that could so substantially affect his own assets. Nevertheless, Judge Smith continued making rulings in the case until October 31, when he belatedly recused himself. Judge Smith therefore violated §455(a).

The other provision violated by Judge Smith is §455(b)(4), which requires recusal when a judge knows that he or his spouse has "any ... interest that could be substantially affected by the outcome of the proceeding." Again, at least by October 27, 1997, Judge Smith had actual knowledge of Mid-State Bank's potential liability for Black's frauds. This means that Judge Smith knew that he and his spouse had a financial interest that could be substantially affected by the outcome of proceedings in SEC v. Black. Nevertheless, Judge Smith continued making rulings in the case until October 31, when he belatedly recused himself. Therefore, contrary to his unexplained (and inexplicable) assertion that "§455(b) never applied to this case," Judge Smith violated §455(b)(4).

In view of this history, Judge Smith's failure to recuse himself in United States v. Black is all the more egregious. Judge Smith disingenuously says that he "briefly" presided over that case. However, he presided over the case for four months, and he ultimately disqualified himself only after Black had made a motion to recuse him.

Judge Smith is also disingenuous, and betrays his continuing ignorance of his judicial responsibilities, when he says, in his letter of February 25, 2002: "I reminded [the parties in United States v. Black] of my earlier recusal and my wife's employment at Mid-State Bank, but neither the U.S. Attorney's Office nor Black suggested that I recuse myself."

First, the Supreme Court has held unanimously that the Federal Judicial Disqualification Statute "placed the obligation to identify the existence of [grounds for disqualification] upon the judge himself, rather than requiring recusal only in response to a party affidavit." The judge's duty of recusal, in short, is intended to be "self-enforcing." Thus, it is irrelevant that the parties in United States v. Black did not suggest that the Judge recuse himself. Judge Smith should have known this at the time, and he surely should have learned it by now.

Second, Judge Smith was disingenuous in telling the parties that his wife was an officer of the Bank, but in withholding from them the fact that he and his wife had a substantial financial interest in the Bank. Because of Black's machinations, the Bank and its parent had suffered a loss of tens of millions of dollars. Also, Judge Smith was a victim of Black's frauds because of the considerable diminution in the value of the stock that he and his wife held in Keystone Financial. As an investor in a victim of Black's frauds, and as a victim himself of Black's frauds, Judge Smith was required sua sponte to recuse himself, or else to put all of the relevant information on the record so the parties could make a fully informed and independent judgment regarding waiver of disqualification. Judge Smith chose to do neither and, indeed, continues to attempt to justify those failures.

I respectfully submit, therefore, that Judge D. Brooks Smith committed repeated and egregious violations of judicial ethics; that to this day he has not informed himself of his obligations under the Federal Judicial Disqualification Statute; and that he has been disingenuous before this Committee in defending his unethical conduct. In my opinion, it would not be appropriate to honor him with advancement to a distinguished Federal Circuit Court.

Respectfully submitted,

Monroe H. Freedman
Lichtenstein Distinguished Professor Of Legal Ethics